PrepTest 118, Section 1, Question 4
Columnist: Analysts argue that as baby boomers reach(86 more words not shown)
The columnist's argument does which(4 more words not shown)
- Aattempts to undermine(10 more words not shown)
- Battempts to undermine(13 more words not shown)
- Cattempts to undermine(12 more words not shown)
- Dargues that the(13 more words not shown)
- Eargues in favor(16 more words not shown)
Reading the argument
If people stop buying a company's products, why would owning its stock become more attractive? That's the question the analysts' optimistic forecast raises.
They expect baby boomers to save more as retirement approaches. More money available to invest sounds promising for the stock market. But saving more also means spending less. Think of a computer company: fewer customers buying its computers could hurt its earnings, even if those customers now have more savings.
The columnist develops that second consequence. Lower consumption would reduce corporate earnings, making high stock prices harder to justify. The columnist therefore expects boomers to put their money into other investments.
What we’re looking for
There is room to question that forecast too. What if younger customers make up for the boomers' reduced spending? But we can describe the columnist's method without accepting the forecast. The method question asks how the reply works: keep the analysts' prediction about boomers' behavior, then argue that it leads to a different investment outcome.
Working the answers
- A
The columnist doesn't say the analysts are wrong that boomers will shift toward saving. That same shift supplies the columnist's reason to expect lower consumption and earnings. The disagreement concerns what follows from the premise, not whether the premise is true.
- B
The columnist does mention that analysts would gain from the predicted outcome. That makes B tempting. But the actual case against their forecast concerns lower consumption, lower earnings, and less attractive stocks. The columnist doesn't rely on a claim that the analysts presented their argument to serve themselves. A possible benefit isn't the main reasoning offered against them.
- CCorrect
The analysts start with boomers saving more and predict money flowing into stocks. The columnist starts with that same change in behavior but follows the reduced-spending side of it: weaker earnings would make stocks less attractive, so the money would more likely go elsewhere. Same starting point, different predicted consequence.
- D
The columnist isn't merely predicting a smaller stock-market gain. The argument says the high stock prices won't be justified and the money is more likely to go into other investments. Calling the analysts overly optimistic doesn't mean accepting their basic conclusion with a slight adjustment.
- E
The columnist argues against the analysts' conclusion. The evidence about consumption and earnings explains why the money may go elsewhere, not why the analysts' predicted flow into stocks will occur.
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